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Deciphering Our Financial Decision Making

Many books about healthy food habits explain that in America, our choices of what, when, and how much to eat are often dictated by non-physical factors– such as our emotional state or social norms– rather than hunger or maintaining good health.  (In the PFS office, for example, we strongly believe that a half day of hard work should be rewarded by a chocolate or two in the early afternoon, whether one is actually hungry or not.)  The same is often true about financial decisions.  Emotions and beliefs about money frequently dictate our financial behavior, regardless of what is in our best interest.  Identifying what underpins those beliefs can help us in achieving our personal and financial goals.


Core Beliefs about Money.  Due to family background or other life circumstances, we often develop beliefs about money that can interfere with financial success or our personal well-being.  Behavioral economist Sarah Newcomb gives examples of these types of beliefs:

  • “My net worth determines my personal worth.”
  • “The rich are selfish.”
  • “The poor are lazy.”
  • “I deserve financial success.”
  • “I don’t deserve financial hardship.”

Regardless of one’s level of financial knowledge, beliefs about money can lead to poor financial decisions, as exemplified below.


Example #1:  The Starbucks Effect.  Jane, a busy working mom with a stressful job, believes that she deserves a grande caramel frappuccino break every afternoon.  The only trouble is that, at $5 per day and over $100 per month, she cannot afford the habit, and it is adding to her rolling credit card debt.  This core belief— that she deserves a break and a treat— is hindering her financial success.  How should Jane address this problem?  She could make a list of wants versus needs, only allow herself to spend money on absolute necessities, and ditch the frappuccino habit as a result.  This would certainly help her monthly cash flow but may also make her unhappy.  Instead, she could try to decipher the type of need that her daily frappuccino break is fulfilling and what else may satisfy it.  Maybe what she really needs is just a few minutes out of the office that could be satisfied by a walk through a nearby park.  Maybe she enjoys the few minutes of conversation with the barista, which could be satisfied by dropping in the office of a co-worker or occasionally meeting a friend for a brown bag lunch.  Like our afternoon chocolate routine at PFS, the frappuccino (and the core belief behind it) is not bad in itself, but if Jane’s habit interferes with her financial success, it is worth trying to identify other ways to address her belief that she deserves a break.


Example #2:  The Job Hunt.  John is in his mid-50s and recently lost his job after 10 years with the same employer.  He is dreading the job hunt and is plagued by the belief that no one will want to hire him or that he will need to lower his salary expectations in order to find another job.  While these beliefs (or fears) are understandable given John’s recent layoff, a different interpretation of his situation may help him to have greater financial success as he navigates this job change.  With 10 more years of experience, John’s expertise and skill set are now more substantial than when he started his last job.  As Newcomb points out, even if you left your job involuntarily, your expertise is a valuable asset— you just need to find the right buyer.


Don’t let your beliefs about money or financial issues hinder your financial success.  Evaluate what beliefs underpin your financial behavior, and if any problems need to be addressed, consider how interpreting those beliefs differently might lead to a better result.  If you need any guidance along the way, as always, we are here to help.


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